Scenario 34-2

Multiple Choice

Scenario 34-2.The following facts apply to a small,imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2.For this economy,an initial increase of $500 in government purchases translates into a

A) $1,388.89 increase in aggregate demand in the absence of the crowding-out effect.
B) $3,125.00 increase in aggregate demand in the absence of the crowding-out effect.
C) $1,135 increase in aggregate demand when the crowding-out effect is taken into account.
D) $3,125.00 increase in aggregate demand when the crowding-out effect is taken into account.